Global fund distribution and wealthtech company Allfunds (AMS: ALLFG) has taken a majority stake in ESG products provider MainStreet Partners. This appears to extend the trend in M&A across the ESG data, services and solution spectrum
M&A in the ESG technology
Growing public and regulatory pressure supports the attractiveness of the ESG label to the investment community, while a technology focus adds ease of integrating data and enabling transparency.
The latter is especially as stakeholders along the responsible investing value chain fortify their offerings in anticipation of stronger regulations focused on greenwashing and transparency.
Allfunds’ Mainstreet Partners deal boosts ESG credentials
The transaction details were undisclosed, but it follows Allfunds recent acquisition of Madrid-based fintech firm Web Financial Group in April for £121 million. Web Financial Group is a provider of digital solutions for wealth management.
Fintech is clearly a focus for the wealth management group as Allfunds Blockchain, the blockchain arm of Allfunds (AMS:ALLFG) recently launched FAST in Italy. This provides a common infrastructure for those involved in investment fund transfers. It’s based on data sharing through blockchain technology that is expected to enhance the end-investor experience, in particular in terms of cost and execution time.
MainStreet Partners has its own platform delivering proprietary ESG scorings, ESG investment strategies via model portfolios and empowered reporting. The deal will see those products added to Allfunds’ existing toolset.
MainStreet suite of tools helps Allfunds access new markets
It enables Allfunds, that helps fund distributors (or those entities that facilitate the buying and selling of investment funds) to build an ESG-focused offering by assessing the profile of funds and portfolios. This is becoming a market critical requirement and will help in building transparency in reporting extra-financial (non-reported) results.
In effect, the platform will enable funding institutions and managers to analyse the alignment of their funds to relevant ESG regulations, assess the sustainability profile of their holdings, and help with impact reporting.
ESG marketability in financial investments likely to sustain M&A trend
There has been continuing inflow of funds into so-called green and sustainable financial instruments. The recognition of climate change as a major risk factor in lending and investing, combined with rising global levels of social unrest has made ESG labelled investing a priority in the financial investment ecosystem. M&A presents a shortcut for firms looking to acquire the necessary ESG credentials to enhance market share, or access new markets.
Based on research from PwC, it also appears that factors underpinning the secular M&A market in the first half of 2022, such as supply chain resilience, portfolio optimisation and competition for technology, will likely apply to the ESG sector as well.
Major investors are moving into the ESG tech space
This is further underscored by Blackstone’s $400 million investment in Xpansiv, the global marketplace for data-driven ESG-inclusive products, including global carbon and environmental commodities. In its current form, Xpansiv itself merged with CBL in 2019, and has successfully raised $250 million in capital since then.
Goldman Sachs’ $1.9 billion acquisition of NN Investment partners was aimed at adding ESG credentials to its European franchise, although it did little to avoid SEC scrutiny over some of its other ESG funds.
ESG-focused technology and fintech companies are central to effective ESG given the vast amounts of data involved in analysing sustainability risks. Fintech focused on ESG have also been attracting considerable investment from venture capitalists, likely resulting from a large proportion being privately-held early stage companies.
According to a 2021 report from Mastercard, venture fund investment in ESG-related fintech jumped by 250% to $1.8 billion in 2020, a trend it expects to continue as more these companies attract capital supporting renewables applications and research.
Technology and fintech investor attention driven by data and transparency needs
Global professional services firms like Accenture and McKinsey have also been active in building out their ESG prowess, going beyond adding people-based capabilities by buying consultancies, to making investment in technology.
Accenture’s strategic investment in ESG measurement platform PulsESG highlights the ongoing need for sound data and analytics. PulsESG’s software as a service (SaaS) platform uses internal data sources and external systems to help organizations define, measure and report on ESG performance, and address issues around ESG data quality and timelines.
